New railway agency to have specific tasks

T.Batbold, Chairman of the Railway Authority, an Implementing Agency of the Government, tells G.Iderkhangai of the tasks ahead and the ways to do them successfully.

Now that the National Railway Infrastructure Agency has been formally constituted  one hundred per cent State-owned company, what do you see as its priorities?

Before coming to these, let me clarify some legal regulations pertaining to the new company. The Mongolian Railway Transportation Law, passed by the State Great Khural in 2007, is the governing document of this sector, and regulates all aspects of railway transportation. The Ulaanbaatar Railway Association has been responsible for both its infrastructure and transportation needs since its establishment in 1949, but several other countries keep different set-ups to look after the two areas. I feel our requirements are better served ifseparate companies get smaller specific responsibilities, instead of having a centralised monolith in charge of everything. These companies must compete and cooperate to properly develop the railway sector.

This is the rationale behind the National Railway Infrastructure Agency, as it is being called, though the official name has not been decided yet. The company will own the railway infrastructure that is to be built. The railway will allow unrestricted access to its services, as per the lawthat has set it up. It will not serve just Ulaanbaatar Railway and Mongolian Railway (MTZ), but all companies, whether private or partially or fully State-owned, will be able to transport freight through this railway, by paying charges for such use to the National Railway Infrastructure Agency.

As per Government directions, establishment procedures of the Agencywill follow those of other State-owned companies under the supervision of the State Property Committee. Once it is established, it will be in charge of the construction of the railway at every level.

How does the new company affect the working conditions and responsibilities of the MTZ, another State-owned company that, too, was established to assume charge of railway construction and transportation?

This is not strictly accurate. The primary tasks of the MTZ were to acquire 30 locomotives and 180 wagons, to upgrade the communication technology as a Millennium Challenge Fund project, and to strengthen the finances of Ulaanbaatar Railway JVC. It was meant to take charge of railway transportation, and construction of railway infrastructure was never to be its responsibility.

As we all know, the Millennium Challenge Fund project had to be abandoned for certain reasons and with that,the rationale and concept behind the MTZ became irrelevant and have now been slipped into those of the new agency.

As I said earlier, the present approach is to keep transportation, infrastructure and usage in different hands. The MTZ will own the locomotives and wagons, components of transportation. It has implemented a project to upgrade the complex mechanical and electrical systems that are run by hundreds of thousands of moving parts, and is constructing a freight loading facility in Zamiin-Uud with a USD300-million easy-term loan from China. The fund sare under the authority of MTZ SOSC. There is an agreement with China to buy machines and equipment for railway construction from there and they have begun arriving.  

This development of transportation facilities is what MTZ is responsible for. If we now saddle it with the actual construction of the infrastructure for the new railway, it will be too much for it, and there will be complications. Once the new agency is set up, MTZ activities will be focused on transportation only. The separation of powers and responsibilities will be legally demarcated.

But hasn’t MTZ already begun work on construction of a railway from the Tavan Tolgoi deposit to Sainshand and Choibalsan, for which it wasgranted a licence?

No, there has been no construction work as yet. Some technical and economic studies and geodesic surveys are being made but the construction programme is still very much on paper. The licence given to MTZ to build the Tavan Tolgoi-Sainshand-Choibalsan railway will become the responsibility of the new agency. Not just this project of MTZ, but the new agency will be in charge of all planned construction projects in the country, including the Ukhaa Khudag-Gashuun Sukhait rail line to be built by Energy Resources LLC, the Nariin Sukhait-Shivee Khuren line to be built by MAK, and the 90-km line that has already been built by Bold Tumur Yuruu Gol.
The new agency will make fresh agreements with these private companies holding construction licences. In all cases, the State will take over 51 percent share of the ownership. This is already decided, but it is still to be negotiated if the 51% State ownership is to take effect immediately or after a certain period of time under private control.

What are the main achievements of the MTZ so far?

Its charge was to implement the New Railway Project, and MTZ prepared a general plan of action in cooperation with the Agency of Land Affairs, Construction, Geodesy and Cartography, and the Ministry of Road, Transportation, Construction and Urban Development. However, we need more detailed data before a full-scale technical and economic feasibility study can be prepared, and not just a basic pre-feasibility evaluation.
MTZ engaged a consultancy team led by McKinsey LLC for this. A contract is ready to be signed with an Australian company, SMEC, selected as technical advisor responsible for engineering design. Altogether, 18 companies were involved in geodesic studies and 10 in geological studies. The final blueprint is not ready, but soil removal work along some 100 km of a planned 250 km has been finished. All this work will now be transferred to the new company.

The former minister of Road, Transportation and Urban Development had blamed non-availability offunds from the Development Bank for lack of progress on the New Railway Project. The Government has now decided to release MNT518 million from its Reserve Fund as capital for the new company so that it can begin work without delay, and has also agreed to guarantee a loan for MNT399 billion to finance the New Railway Project under new hands.  The Development Bank will actuallybe the ultimate source of finance for the company building railway infrastructure, even if this this financing comes in an indirect way. It might provide funds to transportation companies, including MTZ, as well, as they expand facilities to meet the projected huge increase in demand.

Will there be any restriction on how much shares of the new company strategic investors will be able to buy?

The State shall not own less than 51 percent of railways in Mongolia. So a maximum of 49% can be in the hands of foreign and national investors, whether institutional, corporate or individual. We have to work together with the State Property Committee to raise the money. Erdenes Tavan Tolgoi will not allow any individual investor to own more than 10 percent of its total shares, of which the State will of course own 51%. As of now, there is no restriction on holding shares in a transportation company and theoretically, someone could own one 100 percent. MTZ is still an entirely State-owned company, and if and when it is privatised, the State will continue to hold 51% and the remaining shares will be offered according to the law then in force.
One other thing. The MTZ management is appointed by the State Property Committee. Our ministry or the Railway Authority is not involved, though they serve as professional advisors.

Does a company registered in Hong Kong and called Mongolian Railway Infrastructure have anything to do with the railway sector of Mongolia?

It is a matter of concern for us if a company using the name of Mongolia sells shares at the Hong Kong Stock Exchange. It is raising money most likely on false promises but we can only regret the company’s lack of ethics.We have no connection whatsoever with themand it has been granted no operational licence by the Government for any work in the railway. From all we know, it is a case of business fraud.

The State Policy on Railway called for construction of two rail lines. When is the work likely to begin?

The National Security Council wants construction of both to begin by 2013. No licence has yet been granted to any of the interested companies. It takes time. The blueprint has to be prepared and then approved by experts. After that, a Concession Agreement has to be made on transferring 51 percent share. Construction can begin only when these stages are passed.